Americans are increasingly pessimistic about the economy as rising inflation expectations reach levels not seen since 1991, a shift influenced by policy uncertainties.
The latest data from the University of Michigan’s consumer sentiment survey reveals a sharp decline in consumer outlook. The March reading of 57.9 marks the lowest point since November 2022, significantly below economists’ expectations. Consumers are deeply concerned about inflation, with short-term predictions jumping to 4.9% from last month’s 4.3%. Long-term inflation expectations, reaching a level of 3.9% in March, are the highest in over three decades.
Director of the University of Michigan’s Survey of Consumers, Joanne Hsu, noted consumers’ growing apprehensions about economic policies, stating that policy inconsistencies hamper future planning and weaken overall sentiment. March has been telling, as the administration’s unpredictable tariff policies exacerbate economic uncertainties, despite these tariffs having yet to fully impact inflation statistics.
Major trade partners, including the European Union and Canada, have threatened retaliatory tariffs against the U.S., adding to the tension. Meanwhile, reports from the Bureau of Labor Statistics indicate a mixed inflationary picture: the core Producer Price Index was up 3.4% year-over-year, while the Consumer Price Index rose by 3.1% in February, marking the lowest yearly increase since 2021.
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Economist Harry Chambers from Capital Economics emphasized the role of tariffs in inflating consumer worries, noting that the spike in inflation expectations reflects a reaction to the administration’s trade policies. The atmosphere of uncertainty affects not just consumer sentiment but has also contributed to a recent market correction, with the S&P 500 descending over 10% from its February peak.
Market experts highlight the volatility driven by the uncertain policy landscape under the current administration, suggesting that the fluctuating narrative surrounding tariffs complicates market recovery. Anne Walsh of Guggenheim Investments underscored this volatility, indicating that it hinders a clear path forward for equity markets.
The economic outlook remains clouded by inflation concerns and policy unpredictability, leaving American consumers and markets on edge. Until there is clarity in trade policy and inflation control, both consumer sentiment and market stability are likely to remain volatile.
